Effluent tax in Germany

Abstract

The exceptionally high growth in pollution-intensive sectors (such as energy, chemicals, and construction) in the post-war period in Germany caused serious environmental problems as the construction of wastewater treatment facilities did not keep pace and posed a serious threat to future water supply. This chapter analyses the policy mix of economic and regulatory instruments, which was introduced in the Federal Republic of Germany to address this threat. The policy mix consists of discharge permits (Federal Water Act, 1957), discharge limits and technical standards (Waste Water Ordinance, 1997) and the effluent tax (Effluent Tax Act, 1976). The effluent charge, the focus of the chapter, was introduced in 1976 as a reaction to the insufficient implementation of direct regulation (Federal Water Act, Waste Water Ordinance) of effluent discharges by the water management administrations of the Federal States of Germany and the resultant non-compliance with prescribed discharge standards in the private and municipal sectors. While the policy mix and the environment in which it acts makes it difficult to single out the impact of the effluent tax, it was found that the overall quantity and harmfulness of discharged effluents was decreased substantially since the introduction of the policy mix. Wastewater plants were upgraded to state of the art technologies, with 92.6 % of effluents receiving tertiary treatment today. As a result, the quality of water bodies increased substantially, with 85 % of all surface water bodies achieving a water quality II chemical status. In this chapter it is illustrated that a policy mix consisting of regulatory and economic instruments can be very powerful in implementing and enforcing policies to address direct effluent emissions. However, it also shows the importance of setting the right incentive structure and discusses the factors preventing this from happening in the case of the German effluent tax. Further, enabling and disabling factor related to the implementation of the EPI are discussed, as well as the EPI’s economic, social and distributional effects on the German society. Germany’s role as pioneer in the field of environmental taxation as well as the implications of extending the policy mix to the former German Democratic Republic after Germany’s reunification in 1990 provide additional interesting angles of analysis.